John Hancock Fundamental All Cap Core Fund Prospectus 12/1/17 Class A Class C Class I Class R2 Class R4 Class R6 JFCAX JFCCX JFCIX JFACX JFARX JFAIX As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus Any representation to the contrary is a criminal offense
Table of contents Fund summary Fund details Your account The summary section is a concise look at the investment objective, fees and expenses, principal investment strategies, principal risks, past performance, and investment management More about topics covered in the summary section, including descriptions of the investment strategies and various risk factors that investors should understand before investing How to place an order to buy, sell, or exchange shares, as well as information about the business policies and any distributions that may be paid 1 John Hancock Fundamental All Cap Core Fund 5 5 9 12 Principal investment strategies Principal risks of investing Who s who Financial highlights 16 17 18 18 20 21 22 25 31 34 34 36 Choosing an eligible share class Class cost structure How sales charges for Class A and Class C shares are calculated Sales charge reductions and waivers Opening an account Information for plan participants Buying shares Selling shares Transaction policies Dividends and account policies Additional investor services Appendix 1 - Intermediary sales charge waivers For more information See back cover
Fund summary John Hancock Fundamental All Cap Core Fund INVESTMENT OBJECTIVE To seek long-term capital appreciation FEES AND EXPENSES This table describes the fees and expenses you may pay if you buy and hold shares of the fund You may qualify for sales charge discounts on Class A shares if you and your family invest, or agree to invest in the future, at least $50,000 in the John Hancock family of funds Intermediaries may have different policies and procedures regarding the availability of front-end sales charge waivers or CDSC waivers (See Appendix 1 to the prospectus - Intermediary sales charge waivers) More information about these and other discounts is available from your financial representative and on pages 18 to 20 of this prospectus under Sales charge reductions and waivers or pages 126 to 132 of the fund s Statement of Additional Information under Sales Charges on Class A and Class C Shares Shareholder fees (%) (fees paid directly from your investment) A C I R2 R4 R6 Maximum front-end sales charge (load) on purchases, as a % of purchase price 500 None None None None None Maximum deferred sales charge (load) as a % of purchase or sale price, whichever is less 100 100 None None None None (on certain purchases, including those of $1 million or more) Small account fee (for fund account balances under $1,000) ($) 20 20 None None None None Annual fund operating expenses (%) (expenses that you pay each year as a percentage of the value of your investment) A C I R2 R4 R6 Management fee 068 068 068 068 068 068 Distribution and service (Rule 12b-1) fees 030 100 000 025 025 000 Other expenses Service plan fee 000 000 000 025 1 010 1 000 Additional other expenses 037 037 036 027 027 2 027 Total other expenses 037 037 036 052 037 027 Total annual fund operating expenses 135 205 104 145 130 095 Contractual expense reimbursement 000 000 000 000 010 3 000 Total annual fund operating expenses after expense reimbursements 135 205 104 145 120 095 1 Service plan fee has been restated to reflect maximum allowable fees 2 Other expenses have been restated from fiscal year amounts to reflect current fees and expenses 3 The distributor contractually agrees to limit its Rule 12b-1 fees for Class R4 shares to 015% This agreement expires on November 30, 2018, unless renewed by mutual agreement of the fund and the distributor based upon a determination that this is appropriate under the circumstances at that time EXPENSE EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds Please see below a hypothetical example showing the expenses of a $10,000 investment for the time periods indicated and then, except as shown below, assuming you sell all of your shares at the end of those periods The example assumes a 5% average annual return and that fund expenses will not change over the periods Although your actual costs may be higher or lower, based on these assumptions, your costs would be: Expenses ($) A C I R2 R4 R6 Sold Not Sold 1 year 631 308 208 106 148 122 97 3 years 906 643 643 331 459 402 303 5 years 1,202 1,103 1,103 574 792 703 525 10 years 2,043 2,379 2,379 1,271 1,735 1,559 1,166 PORTFOLIO TURNOVER The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio) A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund s performance During its most recent fiscal year, the fund s portfolio turnover rate was 52% of the average value of its portfolio 1
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities Market capitalizations of these companies will span the capitalization spectrum Equity securities include common, convertible, and preferred securities and their equivalents The manager seeks to identify companies that demonstrate key growth drivers, sustainable cash flow production, and high returns on capital, sustainable competitive advantages, and strong management The manager looks for both growth and value opportunities, using the present value of estimated future cash flows to measure intrinsic value The fund may focus its investments in a particular sector or sectors of the economy The manager s fundamental research process produces bottom-up company assessments using key assumptions that drive sales, margins, and asset intensity The manager seeks to purchase company shares that are selling at a significant discount to intrinsic value Sell decisions are similarly driven by long-term fundamental analysis The manager may sell a holding if the holding reaches its target valuation, the manager perceives deterioration in the business s underlying fundamentals, or a more attractive opportunity is identified The fund may invest up to 20% of its net assets in equity securities of foreign issuers, including American Depositary Receipts Investments in exchange-traded funds (ETFs) and derivative instruments may be used to reduce risk and/or obtain efficient investment exposure, and may include options, futures contracts, and swaps (including interest-rate swaps) The fund may also invest in US government securities and other short-term securities such as money market instruments and repurchase agreements PRINCIPAL RISKS An investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency Many factors affect performance, and fund shares will fluctuate in price, meaning you could lose money The fund s investment strategy may not produce the intended results During periods of heightened market volatility or reduced liquidity, governments, their agencies, or other regulatory bodies, both within the United States and abroad, may take steps to intervene These actions, which could include legislative, regulatory, or economic initiatives, might have unforeseeable consequences and could adversely affect the fund s performance or otherwise constrain the fund s ability to achieve its investment objective The fund s main risks are listed below in alphabetical order Before investing, be sure to read the additional descriptions of these risks beginning on page 5 of the prospectus Credit and counterparty risk The issuer or guarantor of a fixed-income security, the counterparty to an over-the-counter derivatives contract, or a borrower of fund securities may not make timely payments or otherwise honor its obligations US government securities are subject to varying degrees of credit risk depending upon the nature of their support A downgrade or default affecting any of the fund s securities could affect the fund s performance Cybersecurity and operational risk Cybersecurity breaches may allow an unauthorized party to gain access to fund assets, customer data, or proprietary information, or cause a fund or its service providers to suffer data corruption or lose operational functionality Similar incidents affecting issuers of a fund s securities may negatively impact performance Operational risk may arise from human error, error by third parties, communication errors, or technology failures, among other causes Economic and market events risk Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility, which could negatively impact performance Reduced liquidity in credit and fixed-income markets could adversely affect issuers worldwide Banks and financial services companies could suffer losses if interest rates rise or economic conditions deteriorate Equity securities risk The price of equity securities may decline due to changes in a company s financial condition or overall market conditions Growth company securities may fluctuate more in price than other securities because of the greater emphasis on earnings expectations Securities the manager believes are undervalued may never realize their full potential value, and in certain markets value stocks may underperform the market as a whole Preferred and convertible securities risk Unlike interest on debt securities, preferred stock dividends are payable only if declared by the issuer s board Preferred stock may be subject to redemption provisions The value of convertible preferred stock can depend heavily on the price of the underlying common stock Exchange-traded funds risk An ETF generally reflects the risks of the underlying securities it is designed to track A fund bears ETF fees and expenses indirectly Foreign securities risk Less information may be publicly available regarding foreign issuers Foreign securities may be subject to foreign taxes and may be more volatile than US securities Currency fluctuations and political and economic developments may adversely impact the value of foreign securities Depositary receipts are subject to most of the risks associated with investing in foreign securities directly because the value of a depositary receipt is dependent upon the market price of the underlying foreign equity security Depositary receipts are also subject to liquidity risk Hedging, derivatives, and other strategic transactions risk Hedging, derivatives, and other strategic transactions may increase a fund s volatility and could produce disproportionate losses, potentially more than the fund s principal investment Risks of these transactions are different from and possibly greater than risks of investing directly in securities and other traditional instruments Under certain market conditions, derivatives could become harder to value or sell and may become subject to liquidity risk (ie, the inability to enter into closing transactions) Regulatory changes in derivative markets could impact the cost of or the fund s ability to 2
engage in derivative transactions Derivatives and other strategic transactions that the fund intends to utilize include: futures contracts, interest-rate swaps, options, and swaps Futures contracts, options, and swaps generally are subject to counterparty risk In addition, swaps may be subject to interest-rate and settlement risk, and the risk of default of the underlying reference obligation Large company risk Larger companies may grow more slowly than smaller companies or be slower to respond to business developments Large-capitalization securities may underperform the market as a whole Liquidity risk The extent (if at all) to which a security may be sold or a derivative position closed without negatively impacting its market value may be impaired by reduced market activity or participation, legal restrictions, or other economic and market impediments Sector risk When a fund focuses its investments in certain sectors of the economy, its performance may be driven largely by sector performance and could fluctuate more widely than if the fund were invested more evenly across sectors Small and mid-sized company risk Small and mid-sized companies are generally less established and may be more volatile than larger companies Small and/or mid-capitalization securities may underperform the market as a whole PAST PERFORMANCE The following information illustrates the variability of the fund s returns and provides some indication of the risks of investing in the fund by showing changes in the fund s performance from year to year compared with a broad-based market index Past performance (before and after taxes) does not indicate future results All figures assume dividend reinvestment Performance information is updated daily, monthly, and quarterly and may be obtained at our website, jhinvestmentscom, or by calling 800-225-5291, Monday to Thursday, 8:00 AM 7:00 PM, and Friday, 8:00 AM 6:00 PM, Eastern time (Class A and Class C), or 888-972-8696 between 8:30 AM and 5:00 PM, Eastern time, on most business days (Class I, Class R2, Class R4, and Class R6) A note on performance Class A and Class C shares commenced operations on June 1, 2011 and June 27, 2014, respectively Class R2, Class R4, and Class R6 shares commenced operations on March 27, 2015 Returns prior to a class s commencement date are those of Class A shares, except that they do not include sales charges and would be lower if they did 1 Returns for Class C, Class R2, Class R4, and Class R6 shares would have been substantially similar to returns of Class A shares because each share class is invested in the same portfolio of securities and returns would differ only to the extent that expenses of the classes are different Please note that after-tax returns (shown for Class A shares only) reflect the highest individual federal marginal income-tax rate in effect as of the date provided and do not reflect any state or local taxes Your actual after-tax returns may be different After-tax returns are not relevant to shares held in an IRA, 401(k), or other taxadvantaged investment plan After-tax returns for other share classes would vary Calendar year total returns (%) Class A (sales charges are not reflected in the bar chart and returns would have been lower if they were) 2012 2013 2014 2015 2016 2313 3415 906 370 796 Year-to-date total return The fund s total return for the nine months ended September 30, 2017, was 1882% Best quarter: Q1 12, 1407% Worst quarter: Q3 15, 681% 3
Average annual total returns (%) as of 12/31/16 1 year 5 year Since inception (06/01/11) Class A (before tax) 257 1389 1062 after tax on distributions 253 1307 988 after tax on distributions, with sale 148 1106 839 Class C 617 1466 1129 Class I 833 1549 1206 Class R2 810 1512 1168 Class R4 819 1516 1172 Class R6 837 1523 1179 Russell 3000 Index (reflects no deduction for fees, expenses, or taxes) 1274 1467 1163 1 Previously, returns for Class C, Class R2, Class R4, and Class R6 shares prior to when each class commenced operations were those of Class A shares that were recalculated to apply the gross fees and expenses of Class C, Class R2, Class R4, and Class R6 shares, as applicable INVESTMENT MANAGEMENT Investment advisor John Hancock Advisers, LLC Subadvisor John Hancock Asset Management a division of Manulife Asset Management (US) LLC PORTFOLIO MANAGEMENT Emory W Sanders, Jr, CFA Team Head and Portfolio Manager Lead Manager of the fund since 2011 Jonathan White, CFA Senior Portfolio Manager Managed the fund since 2015 PURCHASE AND SALE OF FUND SHARES The minimum initial investment requirement for Class A and Class C shares is $1,000 ($250 for group investments), except that there is no minimum for certain group retirement plans, certain fee-based or wrap accounts, or certain other eligible investment product platforms The minimum initial investment requirement for Class I shares is $250,000, except that the fund may waive the minimum for any category of investors at the fund s sole discretion There are no minimum initial investment requirements for Class R2 or Class R4 shares The minimum initial investment requirement for Class R6 shares is $1 million, except that there is no minimum for: qualified and nonqualified plan investors that do not require the fund or its affiliates to pay any type of administrative payment; certain eligible qualifying investment product platforms; Trustees; employees of the advisor or its affiliates; or members of the fund s portfolio management team There are no subsequent minimum investment requirements for any of these share classes Class A, Class C, Class I and Class R6 shares may be redeemed on any business day by mail: John Hancock Signature Services, Inc, PO Box 55913, Boston, Massachusetts 02205-5913; or for most account types through our website: jhinvestmentscom; or by telephone: 800-225-5291 (Class A and Class C); 888-972-8696 (Class I and Class R6) Class R2 and Class R4 shares may be redeemed on any business day by contacting your retirement plan administrator or recordkeeper TAXES The fund s distributions are taxable, and will be taxed as ordinary income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account Withdrawals from such tax-deferred arrangements may be subject to tax at a later date PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank, registered investment advisor, financial planner, or retirement plan administrator), the fund and its related companies may pay the broker-dealer or other intermediary for the sale of fund shares and related services These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the fund over another investment These payments are not applicable to Class R6 shares Ask your salesperson or visit your financial intermediary s website for more information 4
Fund details PRINCIPAL INVESTMENT STRATEGIES Investment objective: To seek long-term capital appreciation The Board of Trustees can change the fund s investment objective and strategy without shareholder approval The fund will provide written notice to shareholders at least 60 days prior to a change in its 80% investment policy Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities Market capitalizations of these companies will span the capitalization spectrum Equity securities include common, convertible and preferred securities and their equivalents In managing the fund, the manager looks for companies that are highly differentiated, with key growth drivers, sustainable cash flow production, and high returns on capital The manager seeks to identify companies with sustainable competitive advantages and high barriers to entry, strong management and a focus on creating value for fund shareholders Both growth and value opportunities are evaluated with an approach that uses the present value of estimated future cash flows as the core methodology for measuring intrinsic value The fund may focus its investments in a particular sector or sectors of the economy The manager employs a disciplined fundamental research process, which produces bottom-up company assessments using key assumptions that drive sales, margins, and asset intensity The manager seeks to purchase shares in companies that are selling at a significant discount to intrinsic value Sell decisions are similarly driven by long-term fundamental analysis and the manager may sell a holding when it has achieved its valuation target, if it believes there is structural or permanent deterioration in the underlying fundamentals of the business, or if it identifies what it believes is a more attractive investment opportunity The fund may invest up to 20% of its net assets in equity securities of foreign issuers, including American Depositary Receipts (ADRs) and similar investments For purposes of reducing risk and/or obtaining efficient investment exposure, the fund may invest in exchange-traded funds (ETFs) and derivative instruments that include options, futures contracts, and swaps (including interest-rate swaps) The fund may also invest in US government securities and other shortterm securities, such as money market instruments and repurchase agreements The fund may invest in cash or money market instruments for the purpose of meeting redemption requests or making other anticipated cash payments Temporary defensive investing The fund may invest up to 100% of its assets in cash, money market instruments, or other investment-grade short-term securities, for the purpose of protecting the fund in the event the manager determines that market, economic, political, or other conditions warrant a defensive posture To the extent that the fund is in a defensive position, its ability to achieve its investment objective will be limited PRINCIPAL RISKS OF INVESTING An investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency The fund s shares will go up and down in price, meaning that you could lose money by investing in the fund Many factors influence a mutual fund s performance The fund s investment strategy may not produce the intended results Instability in the financial markets has led many governments, including the US government, to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility and, in some cases, a lack of liquidity Federal, state, and other governments, and their regulatory agencies or self-regulatory organizations, may take actions that affect the regulation of the instruments in which the fund invests, or the issuers of such instruments, in ways that are unforeseeable Legislation or regulation may also change the way in which the fund itself is regulated Such legislation or regulation could limit or preclude the fund s ability to achieve its investment objective In addition, political events within the United States and abroad could negatively impact financial markets and the fund s performance Governments or their agencies may also acquire distressed assets from financial institutions and acquire ownership interests in those institutions The implications of government ownership and disposition of these assets are unclear, and such a program may have positive or negative effects on the liquidity, valuation, and performance of the fund s portfolio holdings Furthermore, volatile financial markets can expose the fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the fund Below are descriptions of the main factors that may play a role in shaping the fund s overall risk profile The descriptions appear in alphabetical order, not in order of importance For further details about fund risks, including additional risk factors that are not discussed in this prospectus because they are not considered primary factors, see the fund s Statement of Additional Information (SAI) Credit and counterparty risk This is the risk that the issuer or guarantor of a fixed-income security, the counterparty to an over-the-counter (OTC) derivatives contract (see Hedging, derivatives, and other strategic transactions risk ), or a borrower of a fund s securities will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations Credit risk associated with investments in fixed-income securities relates to the ability of the issuer to make scheduled payments of principal and interest on an obligation A fund that invests in fixed-income securities is subject to varying degrees of risk that the issuers of the securities will have their credit ratings downgraded or will default, potentially reducing the fund s share price and income level Nearly all fixed-income securities are subject to some credit risk, which may vary depending upon whether the issuers of the securities are corporations, domestic or foreign governments, or their subdivisions or instrumentalities US government securities are subject to varying degrees of credit risk depending upon whether the securities are supported by the full faith and credit of the United States; the ability to borrow from the US Treasury; only by the credit of the issuing US government agency, instrumentality, or corporation; or otherwise supported by the United States For example, issuers of many types of US government securities (eg, the Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Banks), although chartered or sponsored by Congress, are not funded by congressional appropriations, and their fixed-income securities, including asset-backed and mortgage-backed securities, are neither guaranteed nor insured by the US government An agency of the US government has placed Fannie Mae and Freddie Mac into conservatorship, a statutory process 5
with the objective of returning the entities to normal business operations It is unclear what effect this conservatorship will have on the securities issued or guaranteed by Fannie Mae or Freddie Mac As a result, these securities are subject to more credit risk than US government securities that are supported by the full faith and credit of the United States (eg, US Treasury bonds) When a fixed-income security is not rated, a manager may have to assess the risk of the security itself Asset-backed securities, whose principal and interest payments are supported by pools of other assets, such as credit card receivables and automobile loans, are subject to further risks, including the risk that the obligors of the underlying assets default on payment of those assets In addition, a fund is exposed to credit risk to the extent that it makes use of OTC derivatives (such as forward foreign currency contracts and/or swap contracts) and engages to a significant extent in the lending of fund securities or the use of repurchase agreements OTC derivatives transactions can be closed out with the other party to the transaction If the counterparty defaults, a fund will have contractual remedies, but there is no assurance that the counterparty will be able to meet its contractual obligations or that, in the event of default, a fund will succeed in enforcing them A fund, therefore, assumes the risk that it may be unable to obtain payments owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the fund has incurred the costs of litigation While the manager intends to monitor the creditworthiness of contract counterparties, there can be no assurance that the counterparty will be in a position to meet its obligations, especially during unusually adverse market conditions Cybersecurity and operational risk Intentional cybersecurity breaches include unauthorized access to systems, networks, or devices (such as through hacking activity); infection from computer viruses or other malicious software code; and attacks that shut down, disable, slow, or otherwise disrupt operations, business processes, or website access or functionality In addition, unintentional incidents can occur, such as the inadvertent release of confidential information (possibly resulting in the violation of applicable privacy laws) A cybersecurity breach could result in the loss or theft of customer data or funds, the inability to access electronic systems ( denial of services ), loss or theft of proprietary information or corporate data, physical damage to a computer or network system, or costs associated with system repairs Such incidents could cause a fund, the advisor, a manager, or other service providers to incur regulatory penalties, reputational damage, additional compliance costs, or financial loss In addition, such incidents could affect issuers in which a fund invests, and thereby cause the fund s investments to lose value The fund is exposed to operational risk arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the fund s service providers, counterparties, or other third parties, failed or inadequate processes and technology or system failures Economic and market events risk Events in certain sectors historically have resulted, and may in the future result, in an unusually high degree of volatility in the financial markets, both domestic and foreign These events have included, but are not limited to: bankruptcies, corporate restructurings, and other events related to the sub-prime mortgage crisis in 2008; governmental efforts to limit short selling and high frequency trading; measures to address US federal and state budget deficits; social, political, and economic instability in Europe; economic stimulus by the Japanese central bank; steep declines in oil prices; dramatic changes in currency exchange rates; and China s economic slowdown Interconnected global economies and financial markets increase the possibility that conditions in one country or region might adversely impact issuers in a different country or region Both domestic and foreign equity markets have experienced increased volatility and turmoil, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected Banks and financial services companies could suffer losses if interest rates continue to rise or economic conditions deteriorate In addition, relatively high market volatility and reduced liquidity in credit and fixed-income markets may adversely affect many issuers worldwide Actions taken by the US Federal Reserve (Fed) or foreign central banks to stimulate or stabilize economic growth, such as interventions in currency markets, could cause high volatility in the equity and fixed-income markets Reduced liquidity may result in less money being available to purchase raw materials, goods, and services from emerging markets, which may, in turn, bring down the prices of these economic staples It may also result in emerging-market issuers having more difficulty obtaining financing, which may, in turn, cause a decline in their securities prices In addition, while interest rates have been unusually low in recent years in the United States and abroad, the Fed s decision to raise the target fed funds rate in 2017, following a similar move the previous year, and the possibility that the Fed may continue with such rate increases, among other factors, could cause markets to experience continuing high volatility A significant increase in interest rates may cause a decline in the market for equity securities Also, regulators have expressed concern that rate increases may contribute to price volatility These events and the possible resulting market volatility may have an adverse effect on the fund Political turmoil within the United States and abroad may also impact the fund Although the US government has honored its credit obligations, it remains possible that the United States could default on its obligations While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the United States would be highly disruptive to the US and global securities markets and could significantly impair the value of the fund s investments Similarly, political events within the United States at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the US economy, decrease the value of many fund investments, and increase uncertainty in or impair the operation of the US or other securities markets The US is also considering significant new investments in infrastructure and national defense which, coupled with the prospect of lower federal taxes, could lead to increased government borrowing and higher interest rates While these proposed policies are going through the political process, the equity and debt markets may react strongly to expectations, which could increase volatility, especially if the market s expectations for changes in government policies are not borne out Uncertainties surrounding the sovereign debt of a number of European Union (EU) countries and the viability of the EU have disrupted and may in the future disrupt markets in the United States and around the world If one or more countries leave the EU or the EU dissolves, the world s securities markets likely will be significantly disrupted In June 2016, the United Kingdom approved a referendum to leave the EU, commonly referred to as Brexit There is significant market uncertainty regarding Brexit s ramifications, and the range and potential implications of possible political, regulatory, economic, and 6
market outcomes are difficult to predict Political and military events, including in North Korea, Syria and other areas of the Middle East, Venezuela, and nationalist unrest in Europe, also may cause market disruptions In addition, there is a risk that the prices of goods and services in the United States and many foreign economies may decline over time, known as deflation Deflation may have an adverse effect on stock prices and creditworthiness and may make defaults on debt more likely If a country s economy slips into a deflationary pattern, it could last for a prolonged period and may be difficult to reverse Equity securities risk Common and preferred stocks represent equity ownership in a company Stock markets are volatile The price of equity securities will fluctuate, and can decline and reduce the value of a fund investing in equities The price of equity securities fluctuates based on changes in a company s financial condition and overall market and economic conditions The value of equity securities purchased by a fund could decline if the financial condition of the companies in which the fund is invested declines, or if overall market and economic conditions deteriorate An issuer s financial condition could decline as a result of poor management decisions, competitive pressures, technological obsolescence, undue reliance on suppliers, labor issues, shortages, corporate restructurings, fraudulent disclosures, or other factors Changes in the financial condition of a single issuer can impact the market as a whole Even a fund that invests in high-quality, or blue chip, equity securities, or securities of established companies with large market capitalizations (which generally have strong financial characteristics), can be negatively impacted by poor overall market and economic conditions Companies with large market capitalizations may also have less growth potential than smaller companies and may be less able to react quickly to changes in the marketplace The fund may maintain substantial exposure to equities and generally does not attempt to time the market Because of this exposure, the possibility that stock market prices in general will decline over short or extended periods subjects the fund to unpredictable declines in the value of its investments, as well as periods of poor performance Preferred and convertible securities risk Unlike interest on debt securities, preferred stock dividends are payable only if declared by the issuer s board Also, preferred stock may be subject to optional or mandatory redemption provisions The market values of convertible securities tend to fall as interest rates rise and rise as interest rates fall The value of convertible preferred stock can depend heavily upon the value of the security into which such convertible preferred stock is converted, depending on whether the market price of the underlying security exceeds the conversion price Growth investing risk Certain equity securities (generally referred to as growth securities) are purchased primarily because a portfolio manager believes that these securities will experience relatively rapid earnings growth Growth securities typically trade at higher multiples of current earnings than other securities Growth securities are often more sensitive to market fluctuations than other securities because their market prices are highly sensitive to future earnings expectations At times when it appears that these expectations may not be met, growth stock prices typically fall Value investing risk Certain equity securities (generally referred to as value securities) are purchased primarily because they are selling at prices below what a portfolio manager believes to be their fundamental value and not necessarily because the issuing companies are expected to experience significant earnings growth A fund bears the risk that the companies that issued these securities may not overcome the adverse business developments or other factors causing their securities to be perceived by the portfolio manager to be underpriced or that the market may never come to recognize their fundamental value A value stock may not increase in price, as anticipated by the portfolio manager investing in such securities, if other investors fail to recognize the company s value and bid up the price or invest in markets favoring faster growing companies A fund s strategy of investing in value stocks also carries the risk that in certain markets, value stocks will underperform growth stocks In addition, securities issued by US entities with substantial foreign operations may involve risks relating to economic, political or regulatory conditions in foreign countries Exchange-traded funds (ETFs) risk ETFs are a type of investment company bought and sold on a securities exchange An ETF represents a fixed portfolio of securities designed to track a particular market index A fund could purchase an ETF to temporarily gain exposure to a portion of the US or a foreign market while awaiting purchase of underlying securities The risks of owning an ETF generally reflect the risks of owning the underlying securities it is designed to track, although lack of liquidity in an ETF could result in it being more volatile, and ETFs have management fees that increase their costs An ETF has its own fees and expenses, which are indirectly borne by the fund Foreign securities risk Funds that invest in securities traded principally in securities markets outside the United States are subject to additional and more varied risks, as the value of foreign securities may change more rapidly and extremely than the value of US securities The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries Additionally, issuers of foreign securities may not be subject to the same degree of regulation as US issuers Reporting, accounting, and auditing standards of foreign countries differ, in some cases significantly, from US standards There are generally higher commission rates on foreign portfolio transactions, transfer taxes, higher custodial costs, and the possibility that foreign taxes will be charged on dividends and interest payable on foreign securities, some or all of which may not be reclaimable In the event of nationalization, expropriation, or other confiscation, the fund could lose its entire investment in a foreign security Less information may be publicly available regarding foreign issuers Foreign securities may be subject to foreign taxes and may be more volatile than US securities Currency fluctuations and political and economic developments may adversely impact the value of foreign securities Depositary receipts are subject to most of the risks associated with investing in foreign securities directly because the value of a depositary receipt is dependent upon the market price of the underlying foreign equity security Depositary receipts are also subject to liquidity risk Currency risk Currency risk is the risk that fluctuations in exchange rates may adversely affect the US dollar value of a fund s investments Currency risk includes both the risk that currencies in which a fund s investments are traded, or currencies in which a fund has taken an active investment position, will decline in value relative to the US dollar and, in the case of hedging positions, that the US dollar will decline in value relative to the currency being hedged Currency rates in foreign countries may fluctuate significantly 7
for a number of reasons, including the forces of supply and demand in the foreign exchange markets, actual or perceived changes in interest rates, and intervention (or the failure to intervene) by US or foreign governments or central banks, or by currency controls or political developments in the United States or abroad Certain funds may engage in proxy hedging of currencies by entering into derivative transactions with respect to a currency whose value is expected to correlate to the value of a currency the fund owns or wants to own This presents the risk that the two currencies may not move in relation to one another as expected In that case, the fund could lose money on its investment and also lose money on the position designed to act as a proxy hedge Certain funds may also take active currency positions and may cross-hedge currency exposure represented by their securities into another foreign currency This may result in a fund s currency exposure being substantially different from that suggested by its securities investments All funds with foreign currency holdings and/or that invest or trade in securities denominated in foreign currencies or related derivative instruments may be adversely affected by changes in foreign currency exchange rates Derivative foreign currency transactions (such as futures, forwards, and swaps) may also involve leveraging risk, in addition to currency risk Leverage may disproportionately increase a fund s portfolio losses and reduce opportunities for gain when interest rates, stock prices, or currency rates are changing Hedging, derivatives, and other strategic transactions risk The ability of a fund to utilize hedging, derivatives, and other strategic transactions to benefit the fund will depend in part on its manager s ability to predict pertinent market movements and market risk, counterparty risk, credit risk, interest-rate risk, and other risk factors, none of which can be assured The skills required to utilize hedging and other strategic transactions are different from those needed to select a fund s securities Even if the manager only uses hedging and other strategic transactions in a fund primarily for hedging purposes or to gain exposure to a particular securities market, if the transaction does not have the desired outcome, it could result in a significant loss to a fund The amount of loss could be more than the principal amount invested These transactions may also increase the volatility of a fund and may involve a small investment of cash relative to the magnitude of the risks assumed, thereby magnifying the impact of any resulting gain or loss For example, the potential loss from the use of futures can exceed a fund s initial investment in such contracts In addition, these transactions could result in a loss to a fund if the counterparty to the transaction does not perform as promised A fund may invest in derivatives, which are financial contracts with a value that depends on, or is derived from, the value of underlying assets, reference rates, or indexes Derivatives may relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes A fund may use derivatives for many purposes, including for hedging and as a substitute for direct investment in securities or other assets Derivatives may be used in a way to efficiently adjust the exposure of a fund to various securities, markets, and currencies without a fund actually having to sell existing investments and make new investments This generally will be done when the adjustment is expected to be relatively temporary or in anticipation of effecting the sale of fund assets and making new investments over time Further, since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the derivative itself Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment When a fund uses derivatives for leverage, investments in that fund will tend to be more volatile, resulting in larger gains or losses in response to market changes To limit leverage risk, a fund may segregate assets determined to be liquid or, as permitted by applicable regulation, enter into certain offsetting positions to cover its obligations under derivative instruments For a description of the various derivative instruments the fund may utilize, refer to the SAI The regulation of the US and non-us derivatives markets has undergone substantial change in recent years and such change may continue In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulation proposed to be promulgated thereunder require many derivatives to be cleared and traded on an exchange, expand entity registration requirements, impose business conduct requirements on dealers that enter into swaps with a pension plan, endowment, retirement plan or government entity, and required banks to move some derivatives trading units to a non-guaranteed affiliate separate from the deposit-taking bank or divest them altogether Although the Commodity Futures Trading Commission (CFTC) has released final rules relating to clearing, reporting, recordkeeping and registration requirements under the legislation, many of the provisions are subject to further final rule making, and thus its ultimate impact remains unclear New regulations could, among other things, restrict the fund s ability to engage in derivatives transactions (for example, by making certain types of derivatives transactions no longer available to the fund) and/or increase the costs of such derivatives transactions (for example, by increasing margin or capital requirements), and the fund may be unable to fully execute its investment strategies as a result Limits or restrictions applicable to the counterparties with which the fund engages in derivative transactions also could prevent the fund from using these instruments or affect the pricing or other factors relating to these instruments, or may change the availability of certain investments At any time after the date of this prospectus, legislation may be enacted that could negatively affect the assets of the fund Legislation or regulation may change the way in which the fund itself is regulated The advisor cannot predict the effects of any new governmental regulation that may be implemented, and there can be no assurance that any new governmental regulation will not adversely affect the fund s ability to achieve its investment objectives The use of derivative instruments may involve risks different from, or potentially greater than, the risks associated with investing directly in securities and other, more traditional assets In particular, the use of derivative instruments exposes a fund to the risk that the counterparty to an OTC derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations OTC derivatives transactions typically can only be closed out with the other party to the transaction, although either party may engage in an offsetting transaction that puts that party in the same economic position as if it had closed out the transaction with the counterparty or may obtain the other party s consent to assign the transaction to a third party If the counterparty defaults, the fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that, in the event of default, the fund will succeed in enforcing them For example, because the contract for each OTC derivatives transaction is individually negotiated with a specific counterparty, a fund is subject to the risk that a counterparty may interpret contractual terms (eg, the definition of default) differently than the fund when the fund seeks to enforce its contractual rights If that occurs, the cost and unpredictability of the legal proceedings required for the fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty The fund, therefore, assumes the risk that it may be 8
unable to obtain payments owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the fund has incurred the costs of litigation While a manager intends to monitor the creditworthiness of counterparties, there can be no assurance that a counterparty will meet its obligations, especially during unusually adverse market conditions To the extent a fund contracts with a limited number of counterparties, the fund s risk will be concentrated and events that affect the creditworthiness of any of those counterparties may have a pronounced effect on the fund Derivatives are also subject to a number of other risks, including market risk and liquidity risk Since the value of derivatives is calculated and derived from the value of other assets, instruments, or references, there is a risk that they will be improperly valued Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates, or indexes they are designed to hedge or closely track Suitable derivatives transactions may not be available in all circumstances The fund is also subject to the risk that the counterparty closes out the derivatives transactions upon the occurrence of certain triggering events In addition, a manager may determine not to use derivatives to hedge or otherwise reduce risk exposure Government legislation or regulation could affect the use of derivatives transactions and could limit a fund s ability to pursue its investment strategies A detailed discussion of various hedging and other strategic transactions appears in the SAI The following is a list of certain derivatives and other strategic transactions that the fund intends to utilize and the main risks associated with each of them: Futures contracts Counterparty risk, liquidity risk (ie, the inability to enter into closing transactions), and risk of disproportionate loss are the principal risks of engaging in transactions involving futures contracts Interest-rate swaps Counterparty risk, liquidity risk (ie, the inability to enter into closing transactions), interest-rate risk, and risk of disproportionate loss are the principal risks of engaging in transactions involving interest-rate swaps Options Counterparty risk, liquidity risk (ie, the inability to enter into closing transactions), and risk of disproportionate loss are the principal risks of engaging in transactions involving options Counterparty risk does not apply to exchange-traded options Swaps Counterparty risk, liquidity risk (ie, the inability to enter into closing transactions), interest-rate risk, settlement risk, risk of default of the underlying reference obligation, and risk of disproportionate loss are the principal risks of engaging in transactions involving swaps Large company risk Larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in technology and consumer tastes Many larger companies also may not be able to attain the high growth rate of successful smaller companies, especially during extended periods of economic expansion For purposes of the fund s investment policies, the market capitalization of a company is based on its capitalization at the time the fund purchases the company s securities Market capitalizations of companies change over time The fund is not obligated to sell a company s security simply because, subsequent to its purchase, the company s market capitalization has changed to be outside the capitalization range, if any, in effect for the fund Liquidity risk The extent (if at all) to which a security may be sold or a derivative position closed without negatively impacting its market value may be impaired by reduced market activity or participation, legal restrictions, or other economic and market impediments Funds with principal investment strategies that involve investments in securities of companies with smaller market capitalizations, foreign securities, derivatives, or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk Exposure to liquidity risk may be heightened for funds that invest in securities of emerging markets and related derivatives that are not widely traded, and that may be subject to purchase and sale restrictions Sector risk When a fund s investments are focused in one or a few sectors of the economy, they are not as diversified as the investments of most funds and are far less diversified than the broad securities markets This means that focused funds tend to be more volatile than other funds, and the values of their investments tend to go up and down more rapidly In addition, a fund which invests in particular sectors is particularly susceptible to the impact of market, economic, regulatory, and other factors affecting those sectors From time to time, a small number of companies may represent a large portion of a particular sector or sectors Small and mid-sized company risk Market risk and liquidity risk may be pronounced for securities of companies with medium-sized market capitalizations and are particularly pronounced for securities of companies with smaller market capitalizations These companies may have limited product lines, markets, or financial resources, or they may depend on a few key employees The securities of companies with medium and smaller market capitalizations may trade less frequently and in lesser volume than more widely held securities, and their value may fluctuate more sharply than those securities They may also trade in the OTC market or on a regional exchange, or may otherwise have limited liquidity Investments in less-seasoned companies with medium and smaller market capitalizations may not only present greater opportunities for growth and capital appreciation, but also involve greater risks than are customarily associated with more established companies with larger market capitalizations These risks apply to all funds that invest in the securities of companies with smaller- or medium-sized market capitalizations For purposes of the fund s investment policies, the market capitalization of a company is based on its capitalization at the time the fund purchases the company s securities Market capitalizations of companies change over time The fund is not obligated to sell a company s security simply because, subsequent to its purchase, the company s market capitalization has changed to be outside the capitalization range, if any, in effect for the fund WHO S WHO The following are the names of the various entities involved with the fund s investment and business operations, along with brief descriptions of the role each entity performs Board of Trustees The trustees oversee the fund s business activities and retain the services of the various firms that carry out the fund s operations 9